www.pwc.co.uk
UK tax strategy
publication
What you need to know
about the new rules
2017
Introduction
Legislation in Finance Act 2016 Schedule 19,
introduced the requirement for qualifying groups to
publish their UK tax strategy. The deadline for
publication is before the end of the first period
beginning after 15 September 2016.
At the same time as considering Country by Country
Reporting (‘CbCR’) and significant legislative change as
a result of BEPS, organisations will have to make a
public statement on how they approach the
management of tax. The new requirement will
have a considerable impact on large
companies, as they are forced to engage with
the public on their tax affairs, explaining their
previously private views on tax management.
All at a time when their approach to tax is under
immense scrutiny internally and externally.
We know from our work with organisations to date
that it is not advisable to consider the publication of a
UK tax strategy to be a simple exercise. Groups must
think broadly and consider:
1. How senior stakeholders will be engaged
and whether a global tax strategy publication is
more appropriate, given potential scrutiny by nonUK tax authorities;
1 | UK tax strategy publication | PwC
2. How the strategy will be embedded in
practice; and
3. How tax risks and opportunities which
require further investigation will be
identified, to ensure alignment to the agreed
strategic objectives on tax.
If this approach is not taken, organisations leave
themselves open to HMRC and wider stakeholder
challenge with an increased risk of higher tax penalties
should tax errors arise in the future. This is reinforced
by HMRC directing its efforts on Senior Accounting
Officer (‘SAO’) to require proactive monitoring of key
tax controls, which is also a key feature behind the
strategy legislation. Requiring oversight by
companies on tax to move from being passive to
proactive will, in our view, make formal tax
control frameworks a necessity and represent a
step change in tax governance.
The new legislation mirrors wider global
developments on tax governance and
cooperative compliance across the OECD, and
should be considered in this context. See below for an
overview of the new rules and our recommended
response.
Overview of the new rules
Who:
UK SAO Groups (include permanent establishments in the threshold test, but
consider partnerships separately), or; Multinational Groups with EUR 750m
worldwide turnover (‘MNE Group’).
What:
Statements covering four areas required by legislation and HMRC
guidance (below).
Where:
Any publicly available website.
When:
By the end of first period beginning on or after 15 September 2016
(for MNE Groups, use the foreign parent year-end).
PwC Tip
Whilst board approval is not
required, it is recommended.
Your tax strategy should align
to published statements on
business strategy and ethics.
Consider if publishing a
global tax strategy is
more appropriate.
Your tax strategy must include the following per the legislation and guidance
How you manage tax risks
Include what tax risks are linked to your business’s size, complexity
and any changes to your business. Other information on governance
arrangements to include:
•
Details on how you manage your business’s tax risk.
•
A high level description of key roles and their responsibilities.
•
Information on the systems and controls in place to manage tax risk.
•
Details on the levels of oversight of your business’s board and
its involvement.
Your tax risks
You should say if your business’s internal governance has rigid levels
of acceptable tax risk. If so, you should explain how it is influenced
by stakeholders.
(For example, your organisation may have defined your approach to
tax risk appetite in the context of the wider risk framework).
Your attitude to tax planning
If your business has a code of conduct you should include details of it.
You should also include:
•
Why you might seek external tax advice, if any.
•
An outline of your tax planning motives.
•
The importance of each to your tax strategy.
Working with HMRC
While your business’s approach to working with HMRC will be understood
by your Customer Relationship Manager (CRM), you’ll still need to put it in
your tax strategy. You should include:
•
How your business meets its requirement to work with HMRC.
•
How you work with HMRC on:
1. Current, future and past tax risks;
2. Tax events; and
PwC Tip
It’s really important to explain
how you operate governance
by reference to HMRC’s
2016 guidance in relation
to the Senior Accounting
Officer regime.
PwC Tip
Your organisation may have an
enterprise wide approach to
risk management, and as far as
possible, existing risk
processes should be referenced.
PwC Tip
Approach to forward planning
is important but you must also
consider historic planning to
ensure consistency with your
public statements.
PwC Tip
Many groups will find it helpful
to explain the approach to
working with tax authorities
beyond the UK. You should also
consider whether you have
strategic objectives on tax that
go beyond the four areas
mentioned by HMRC.
3. Interpreting the law.
PwC | UK tax strategy publication | 2
How do you respond?
Companies should engage early with the new legislation and key stakeholders to undertake two main activities;
Develop a published tax strategy
Ensure effective monitoring
of tax governance
As well as setting out your Group’s approach to tax
planning and how you engage with HMRC, the strategy
must also confirm publicly that the company has
effective tax governance and what level of risk an
organisation is willing to accept. Prior to publication we
would strongly recommend active engagement with
HMRC on all of these points.
Whilst a lot of the wording in HMRC’s tax strategy
guidance is not new, CRMs will give greater attention to
measuring taxpayer behaviour against statements made
in the strategy, as part of business risk reviews.
HMRC has clarified what good tax governance looks like
as part of a revamped approach to SAO. We now know
that organisations organisations must have a clear
understanding of key tax risks, and be able to evidence
the assessment of the mitigating controls design and
operating effectiveness. This goes beyond the activity on
SAO that many groups undertook when SAO was first
introduced, shifting the emphasis to proactive oversight.
This approach also ensures your tax strategy statement
aligns to, and does not contradict, your other tax filings.
If there is no tax strategy currently in place, companies
will need to work through who to involve in the process
and how to develop a strategy. Equally, there may be
international aspects to be addressed such as considering
how public statements on tax strategy might be
interpreted by other tax authorities. In particulate, this
will require multinational groups to engage at HQ level.
How we can help
How you approach the new rules needs to be considered in the
context of an environment of increased public scrutiny over
taxes globally through BEPS, Country by Country Reporting,
and ongoing developments in the EU and OECD on
mandatory public tax transparency reporting. The PwC
approach reflects this and is flexible depending on whether
you have significant or minimal activity in the UK, are UK or
foreign parented, and have a simple or complex operating
model. Your facts and circumstances will determine whether
you need to take a 'minimum requirement' approach or a
broader perspective to satisfy the new rules as explained
opposite;
A broader perspective
Your UK tax strategy should be developed whilst having
regard for the wider tax environment, and the need to have
confidence in what you are disclosing externally. It must
reflect the views of your key stakeholders and how you
operate in practice. Recommended actions include:
•
Consider examples of best practice tax disclosure in the
UK and globally
•
Identify key stakeholders and understand their needs
•
Discuss the consistency between statements and
approach on strategy, CbCR and SAO
•
Develop a tax risk management framework to detail
risk appetite and how the implementation of your tax
strategy is monitored
•
Possible risk and control review to confirm the
identification of key tax risks and review the design and
operating effectiveness of key tax controls
•
Prepare disclosure to satisfy UK rules but appropriate to
wider needs or context (perhaps global or covering
multiple divisions)
Minimum requirement
Develop a tax strategy document in line with the new
requirement and signed off by senior stakeholders. This can
likely be undertaken towards the publication deadline for
small and simple organisations. If you take this approach,
you must at least consider your overarching tax governance.
This will enable you to explain to HMRC how your tax
strategy is implemented in practice, when questioned.
We want to work with you to understand, design and implement a strategy to suit your needs. PwC’s One Tax approach mirrors
your need to draw on a number of different company stakeholders and views. We bring expertise from a range of specialist
teams to help you address the specific requirements of the rules, whilst considering the broader tax environment.
PwC contacts
Mark Schofield
Andrew Packman
Stella Amiss
Ray Farnan
T: +44 (0)20 7212 2527
E: [email protected]
T: +44 (0)1895 522104
E: [email protected]
T: +44 (0)20 7212 3005
E: [email protected]
T: +44 (0)20 7213 1542
E: [email protected]
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